PETER DANIEL ONIMISI (Doctorat.) (Ph.D.)
Association of African Development Finance Institutions (AADFI)
Abidjan, Republic of Côte d’Ivoire
Abstract
Africa’s annual development-financing shortfall has escalated to more than $1.3 trillion, driven by rising debt-service costs, a deteriorating external financing environment, and the structural limits of foreign-currency borrowing. This article argues that local-currency financing and the deliberate deepening of domestic capital markets have become the principal strategic response available to African economies and their development finance institutions (DFIs). The article examines how the African Development Bank’s New African Financial Architecture for Development (NAFAD) — endorsed under the April 2026 Abidjan Consensus — is emerging as the continent’s organising framework for the response to capital mobilization challenge. Drawing on continent-wide data, the NAFAD framework, institutional innovation in the DFI sector, and Nigeria’s pension industry as a detailed case study, the paper examines the architecture required for functioning local-currency capital markets, the evolving role of African DFIs as market-builders rather than lenders of last resort, and the structural constraints — inflationary pressure, shallow private-sector market instruments, and fragmented investor bases — that must be overcome. Nine policy directions are identified, including anchoring continental coordination on NAFAD, strengthening debt management offices, scaling DFI-backed credit-enhancement mechanisms such as the recapitalisation of the African Trade and Investment Development Insurance (ATIDI), and expanding local-currency hedging capacity. The article concludes that the raw material for this transformation — an estimated $4 trillion in African institutional capital — already exists; the harder work lies in building the institutional infrastructure, of which NAFAD is now the continent’s principal coordinating framework, to deploy it productively.
Keywords: Domestic resource mobilization; local-currency financing; capital market development; development finance institutions; Africa; pension funds; debt sustainability; blended finance
1- Introduction
Few regions illustrate the stakes of domestic resource mobilization (DRM) more clearly than Africa. The continent’s economies have proven resilient — growth averaged 4.2 percent in 2025, with 22 countries expanding above 5 percent, comfortably outpacing the global average — yet the financing required to sustain that growth has become harder to source externally[1]. The African Development Bank’s 2026 African Economic Outlook estimates the continent’s annual development-financing shortfall at more than $1.3 trillion, a sharp increase from the $402 billion structural-transformation gap the Bank had estimated just two years earlier, reflecting both rising needs and a deteriorating external financing environment.[2],[3]
Africa’s public debt tells a parallel story: it grew by close to 170 percent, to over $1.8 trillion, between 2010 and 2024, with the composition shifting away from concessional, low-cost lending toward commercial creditors, non-Paris Club lenders, and domestic borrowing.[4] Debt-service costs across the continent now exceed $100 billion a year, and more than half of Africa’s low-income countries are in or near debt distress.[5],[6] In this environment, the question is no longer whether Africa should rely more on its own resources, but how quickly it can build the institutions — fiscal, financial, and monetary — to do so. Local-currency financing and the deepening of domestic capital markets sit at the centre of that answer, and African Development Finance Institutions (DFIs) have become the principal vehicles for delivering it. This article examines why local-currency financing matters, how capital-market deepening supports it, and what the evidence from Africa — Nigeria in particular — suggests about the opportunities and constraints involved. It begins with the New African Financial Architecture for Development (NAFAD), the African Development Bank-led framework endorsed by the Abidjan Consensus in April 2026, which now provides the continental umbrella under which most of the initiatives discussed in this article are being coordinated. The article draws on the most recent available data, including the 2026 African Economic Outlook, the OECD’s 2025 Africa Capital Markets Report, official NAFAD and Abidjan Consensus documentation, and the evolution of DFI practice across the continent.
2. The New African Financial Architecture for Development (NAFAD)
On 9 April 2026, the African Development Bank convened a Consultative Dialogue in Abidjan that brought together African central bank governors, sovereign wealth fund executives, regional commercial banks, national development banks, securities exchanges, private equity firms, and development finance institutions. The dialogue produced an eleven-point “Abidjan Consensus” formally launching the New African Financial Architecture for Development (NAFAD, evolved from an earlier initiative known as NAFA).[1] NAFAD seeks to mobilise Africa’s domestic savings and institutional capital; strengthen African financial institutions and deepen domestic capital markets; reduce investment risk through guarantee and risk-sharing mechanisms; increase investment in infrastructure, agriculture, energy, manufacturing, digital transformation, health, education, and climate resilience; reduce dependence on external aid and strengthen Africa’s financial sovereignty; and attract greater private-sector and international co-investment through better-coordinated financing instruments. The initiative is built around five interconnected pillars, which include capital mobilization, risk-sharing mechanisms, financial market development, institutional strengthening, and regional financial integration.Rather than creating a new institution, NAFAD is designed as a coordination framework built around the principles of subsidiarity, complementarity, coordination, and disciplined risk transformation.[2] NAFAD responds to the structural mismatch documented in the Introduction above: an annual development-financing shortfall running into the hundreds of billions of dollars, set against a continent that the AfDB estimates holds more than $4 trillion in domestic institutional capital — pension funds, sovereign wealth funds, insurance assets, diaspora savings, and bank balance sheets — much of it fragmented, short-dated, or held outside the formal financial system. Rather than relying primarily on external aid and concessional borrowing, NAFAD seeks to mobilise this capital directly, at a moment when official development assistance from OECD countries fell by an estimated 7.1 percent in 2024 and is projected to fall further
[1]African Development Bank Group. (2026). “African Development Bank Group’s New African Financial Architecture for Development gets off to a bold start at Abidjan meeting,” April 2026. https://afdb.africa-newsroom.com/press/african-development-bank-groups-afdb-new-african-financial-architecture-for-development-gets-off-to-a-bold-start-at-abidjan-meeting?lang=en
[2]African Development Bank Group. (2026). “Africa Forward Summit backs New African Financial Architecture for Development and Pan-African guarantee mechanism to unlock investment and jobs across Africa,” May 2026. https://www.afdb.org/en/news-and-events/press-releases/africa-forward-summit-backs-new-african-financial-architecture-development-and-pan-african-guarantee-mechanism-unlock-investment-and-jobs-across-africa-93131